Friday, December 15, 2006

Each quarter the FCC recalculates the amount that consumers are taxed to support the "universal service fund". The FCC's most recent calculation shows the federal tax for the next three months will be 9.7% on every interstate and international call. (Yes, I know that, strictly speaking, this tax is called a "contribution" by the feds, but if it walks like a duck, and quacks like....well, you know. And I know this amount does not even include local telecom taxes imposed by many jurisdictions.)

USF funds are disbursed to subsidize communications service to school and libraries, "high-cost" areas, and low-income persons. Over the years the subsidies, especially those to high-cost areas, have grown exponentially, because there are no incentives built into the system to avoid wasteful expenditures or to use newer, more efficient, less costly technologies. In fact, under the current USF regime, the incentives are just the opposite.

This is not to say that the entire USF concept should be gutted. For example, there is widespread support for subsidies to low-income persons truly in need of discounted communications services. But it is to say the USF is in need of substantial reform. Congress passed up on the opportunity to make any progress on USF reform last year. But because new Internet-based communications services are disrupting the marketplace and do not fit comfortably with the existing USF scheme, the program is going to need to be reformed sooner rahter than later. And that reform, one way or the other, should include a substantial reduction in the total amount of subsidies disbursed each year and then a cap on any further growth from the reduced level.

A 10% telecommunications tax just doesn't make sense in today's communications-dependent environment.